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Cyprus in last-ditch talks to avert meltdown

President in Brussels for bailout talks as government spokesman warns he faces "difficult task" to save economy.

24 Mar 2013 20:05 GMT

Cyprus' President Nicos Anastasiades, in Brussels for talks with EU and European Central Bank officials over a crucial bailout, is facing an uphill task to save the island's economy, a government spokesman has said.

The unnamed spokesman, who was quoted by the Reuters news agency, said on Sunday Anastasiades had a "very difficult task to accomplish to save the Cypriot economy and avert a disorderly default if there is no final agreement on a loan accord".

Cyprus is seeking a 10 billion euro ($13bn) bailout from the "troika" of international lenders - the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) - but has to raise 5.8 billion euros ($7bn) by Monday to qualify for the package.

The ECB has warned it will stop emergency liquidity assistance it is giving to Cypriot banks if Cyprus fails to meet the Monday deadline, spelling certain collapse and potentially pushing the country out of the euro zone. Banks are due to reopen on Tuesday after a 10-day shutdown.

If liquidity assistance were to be stopped, Cyprus' financial system would come to a standstill.

Cyprus' overgrown banking sector has been crippled by exposure to crisis-hit Greece, one of 17 nations in the eurozone.

Sticking point

Al Jazeera's Jonah Hull, reporting from the capital, Nicosia, said Anastasiades was travelling to Brussels with central bank and finance ministry officials.

Our correspondent said the issue of "possible closure of the Bank of Cyprus", the country's largest lender, was becoming a sticking point.

"The European powers want to see the closure of that bank - heavily, heavily exposed - to reduce liabilities, and Cyprus wants to hold on to it. This has emerged as the last-minute sticking point," Hull said.

In Brussels, Al Jazeera's Harry Smith said the Cypriot delegation had a lot of convincing to do and that it would have scheduled meetings with various groups, including from the IMF, EU and ECB.

Facing a Monday deadline to avert a collapse of the Cypriot banking system, talks in Nicosia to seal a bailout from the EU and the IMF broke up late on Saturday without result.

"Negotiations are at a very delicate phase," the Cypriot government said in a statement after those talks.

"The situation is very difficult and the deadlines are very tight."

Conservative leader Anastasiades, barely a month in the job and grappling with Cyprus' worst crisis since a 1974 invasion by Turkish forces split the island in two, is expected to meet heads of the EU, the ECB and IMF.

Finance ministers of the 17-nation euro zone were to meet at 17:00 GMT on Sunday, but the meeting delayed by at least two hours as preliminary talks dragged on.

Scrambling to find the funds, officials said Cyprus had conceded to a one-time levy on bank deposits of over $120,000, a dramatic U-turn from five days ago when legislators angrily threw out a similar proposal as "bank robbery".

A senior Cypriot official quoted by Reuters said Nicosia had agreed with its lenders on a 20 percent levy over and above $100,000 at the Bank of Cyprus, and four percent on deposits above the same level at other banks.

Cypriots have for the past week been besieging cash machines, ever since bank doors were closed on the orders of thegovernment to avert a massive capital flight. Anticipating a run on banks when they reopen on Tuesday, parliament has given the government powers to impose capital controls.

On Sunday, the country's two main banks - Laiki (Popular) Bank and the Bank of Cyprus - cut their ATM withdrawal limits to 100 euros a day respectively.

Hundreds of Cypriot demonstrators rallied outside EU offices and the presidential palace on Sunday evening, raising slogans against the "troika" and President Anastasiades.

About 500 members of the communist AKEL party gathered outside the offices of the European Commission offices chanting: "Don't bow, people of Cyprus, stand up for your rights," and "Troika prints euros and buys nations."